India is the third-largest economy on a purchasing power parity basis and has the world’s second-largest population, according to World Bank data.

It’s a major engine of growth in Asia and is deepening its trade and investment flows within the region.

Australian Prime Minister Tony Abbott is scheduled to visit the country in September, an important step toward establishing a Comprehensive Economic Cooperation Agreement (CECA) and reversing a worrying decline in bilateral trade between Australia and India.

The value of Australia-India trade fell from AUD20 billion to AUD15 billion Australian dollars in 2013, as elevating relations to a “strategic partnership” has clearly not achieved one of the desired results, which is deeper economic engagement.

But there are significant opportunities for Australia in India.

According to a feasibility study conducted as part of free trade agreement negotiations between the two countries, Australia would gain AUD43 billion in real gross domestic product (GDP) in net present value (2008) terms.

Mr. Abbott will find a solid negotiating partner, as the new government under Prime Minister Narendra Modi, who took office in May 2014, is pro-business and pro-growth.

GDP per capita was the same as China’s 30 years ago. It’s now less than a quarter of the size. Despite a couple of bouts of reform and spurts of growth, India’s economy has never achieved the momentum that has dragged much of East Asia out of poverty.

Mr. Modi has a mandate for economic reform. Although his core supporters are religious nationalists, it was the votes of the young, urban and educated that won him the election. They want the chance of self-advancement that Mr. Modi, a tea-seller’s son, both represents and promises.

Finance Minister Arun Jaitley’s first budget included bold, potentially transformative ideas to drive growth in India, which has been stuck for two years below 5 percent, the worst performance in a quarter of a century, back to an annual 7 percent to 8 percent in the next three years.

Mr. Jaitley’s program is focused on cutting government debt, controlling inflation, splurging on infrastructure and creating jobs.

Indeed Mr. Modi has been very vocal in his desire lead a Chinese-style infrastructure boom, with construction of superhighways, bullet trains and “smart cities” spurring accelerated economic growth.

Mr. Modi’s administration, despite fiscal restraints, is trying to grease the wheels of infrastructure with its own direct spending. It allocated USD6.3 billion for roads for the 12 months to the end of March 2014, about USD1 billion more than the USD5.5 billion allocated for fiscal 2013.

And it’s outlined plans to increase road spending again in fiscal 2015.

The government is also attempting to unlock new, longer-term sources of capital, with tax measures to lower the cost of accessing global bond markets and by encouraging domestic investment through infrastructure investment trusts.

And the Reserve Bank of India (RBI) also issued new rules to encourage Indian banks to issue long-term local currency bonds for infrastructure, which will be exempt from cash reserve requirements, reducing their effective cost.

Australia’s most immediate impact on India via a comprehensive economic pact will likely be through its mining, resources and energy companies.

Infrastructure, financial services, food security, agriculture, water management, education, tourism, health care and information technology are other longer-term sectors where Australia-based companies can establish meaningful operations in India.

Construction materials companies such as cement and clinker producer Adelaide Brighton Ltd (ASX: ABC, OTC: ADBCF) and engineering firms like Cardno Ltd (ASX: CDD, OTC: COLDF) could see benefits from expanding into India, as could grain handler GrainCorp Ltd (ASX: GNC, OTC: GRCLF), which could play a meaningful role as Indian appetites mature along with rising incomes.

Adelaide Brighton could be a significant supplier amid an urban infrastructure boom, while Cardno’s water management experts have significant experience solving supply and purity problems for the most precious of resources.

Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) already has a significant presence on the Subcontinent, having established a branch in Mumbai in 2011. In May 2014 ANZ received in-principle approval from the Reserve Bank of India to open new branches in Gurgaon, New Delhi’s prime business hub, and in Outer Bangalore, as it continues to execute its “Greater Asia” strategy.

Private hospital operator Ramsay Health Care Ltd (ASX: RHC, OTC: RMSYF) has already expanded beyond Australia into the UK and France, but its international ambitions include ventures in Malaysia, where rising incomes are driving demand for better health care.

But the most immediate impact of a stepped-up Australia-India trade relationship will be felt by Australia-based commodity producers.

Iron Ore

Efforts to improve living standards in India–as well as in South Asian and North African nations–require urbanization and industrialization, and that means steel. Stepped-up steel production means increased use of iron ore.

There are 3.5 billion people living in the world’s developing economies two or three weeks sailing time from Australia’s Pilbara region in Western Australia.

According to Fortescue Metals Group Ltd (ASX: FMG, OTC: FSUMF, ADR: FSUGY), India could become a key future customer as its steel industry grows and the nation seeks to raise living standards.

CEO Nev Power recently noted that “India will be an incredibly important market for us,” driven by the growth of the Indian steel industry along the coastal seaboards. Mr. Power compared India’s development path to that of Australia’s No. 1 trading partner, China.

Atlas Iron Ltd (ASX: AGO, OTC: ATLGF) made its first shipment to India in May and has staff visiting the country to develop ties to potential customers.

Atlas CEO Ken Brinsden recently noted that Australia’s iron ore producers “all got caught by surprise back in 2003 and 2004” by China’s rapidly amped up demand. The Middle Kingdom is now the key variable for the global iron ore market, though a supply glut has allowed the country’s steelmakers to stock up at low prices.

Ore with 62 percent content delivered to Tianjin Port in China has come off its June 16, 2014, low of USD89, closing at USD93.40 on Aug. 15.

China’s iron ore imports jumped nearly 11 percent in July compared to June, as buyers took advantage of lower prices for the steelmaking raw material and stocked up, despite weak domestic steel demand.

July’s total shipments of 82.52 million metric tons represented the third-highest on record, with steel mills in China continuing to produce at high rates. Margins for steel mills have also improved as a result of lower iron ore and other input prices.

Import numbers are generally pretty volatile, with big “up” months followed by big “down” months. June shipments were a little low, so July looks that much better. But the quarterly average is basically in line with expectations.

Australia’s share of Chinese iron ore imports was 61 percent of the total in June and 56 percent in the first half of the year, against about 50.8 percent for all of 2013.

Australian exports to China from Port Hedland hit an all-time high of just under 31 million metric tons in July, up from the previous high in May. Total iron ore exports from Port Hedland were an all-time record of 36.08 million metric tons in July.

Mr. Power of Fortescue expects iron ore prices, which rose in July for the second consecutive month, to be above USD100 per ton by the end of the year, as Chinese domestic producers reduce or halt output. Major producers, however, continue to ramp up activity, grabbing market share from smaller, higher-cost producers who can’t make money with iron ore prices as low as they’ve been in 2014.

Despite India’s potential for massive growth in urbanization, it remains an open question whether the Subcontinent will become a structural importer of iron ore and a major influence on prices.

At the same time, India is on track to become a net importer of iron ore in fiscal 2015, with steelmakers including JSW Steel Ltd (India: JSTL), the nation’s third-largest producer, buying as much as 15 million tons from abroad, according to a July 30, 2014, report from the Federation of Indian Mineral Industries.

Local supplies of the steelmaking ingredient in India, once the world’s third-largest exporter, have been restricted amid curbs on mining in some areas.

JSW Steel will import 6 million metric ton of iron ore during fiscal 2015 compared with no shipments in fiscal 2014 due to domestic production cutbacks.

JSW’s return to the seaborne iron ore market after a gap of more than a year could further support prices that seem to be recovering after sliding to 21-month lows in mid-June.

India’s Supreme Court in May ordered the temporary closure of some iron ore mines in top producing state Odisha pending renewal of their licenses. This has cut output from the state that produced more than 70 million metric tons in fiscal 2014. A previous court clampdown on illegal mining in Karnataka and Goa states has also stifled supplies.

JSW imported about 1.6 million metric tons in fiscal 2013.

India was once the world’s third-largest exporter of iron ore, shipping more than 117 million metric tons during fiscal 2010.

It slipped to No. 10 for fiscal 2014, with exports estimated at less than 20 million metric tons.

From about 218 million metric tons in fiscal 2010 India’s iron ore production fell to 144 million metric tons for fiscal 2014.

Output is expected to drop to 100 million metric tons in fiscal 2015, against forecast demand of 140 million metric tons.

The domestic shortage has also forced JSW to use low-grade iron ore ignored by local steel mills before the mining restrictions came into place in the past three years.

This has increased JSW’s consumption of coke, a processed form of coal, by up to 25 percent. The company’s coke imports will continue to rise from the 8 million metric tons it shipped in during fiscal 2014.

Lower-grade iron ore tends to consume more energy, boosting costs, and that’s on top of productivity losses.

So there are plenty of factors in place that could make India Australia’s next big iron ore customer.

BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and Rio Tinto Ltd (ASX: RIO, NYSE: RIO), the world’s two largest iron ore producers, have aggressively expanded production in recent years despite falling prices, capitalizing on the fact that their scale allows them to turn substantial profits with iron ore prices even lower than they are now.

Efforts by both companies to cut costs and streamline operations have freed up capital that will now likely flow to shareholders in the form of stepped-up dividend and share buyback programs.

Uranium

Australia holds about a third of the world’s recoverable uranium resources and exports nearly 7,000 metric tons a year.

According to Minister of Trade Andrew Robb Australia could soon start exporting uranium to India.
Mr. Robb indicated a deal with India was near in the aftermath of a G20 trade ministers meeting in Sydney in early August, during which he held talks with an Indian trade delegation.

Energy-starved India is looking to nuclear power to supplement its existing options to fuel economic growth. India has already concluded civil nuclear cooperation agreements with countries including Argentina and Kazakhstan.

India and Australia announced their intention to engage in talks on cooperation in civil nuclear energy during Prime Minister Julia Gillard’s visit to India in October 2012. This was preceded by the Australian Labour Party in December 2011 voting to lift a longstanding ban on the sale of uranium to India, which is not a signatory to the nuclear Non-Proliferation treaty.

As is the case with iron ore, Australia’s two global mining giants, Rio Tinto and BHP Billiton, are best-positioned to benefit from an agreement on this front.

Rio Tinto owns 68.4 percent of Energy Resources of Australia Ltd (ASX: ERA), a Northern Territory-based miner and producer of uranium oxide.

Energy Resources is Australia’s largest and the world’s fourth-largest uranium producer, exporting its product to Asia, Europe and North America, solely for use in nuclear power facilities for the generation of electricity.

Rio Tinto also owns the Rossing uranium mine in Namibia.

BHP Billiton is a 100 owner of the Olympic Dam mine in South Australia, where it mines copper, cathodes, uranium oxide, gold and silver bullion.  Olympic Dam is Australia’s second-largest producing uranium mine.

Paladin Resources Ltd (ASX: PDN) is Australia’s third-largest uranium producer, with projects located in Africa and Australia. Paladin’s current focus is on its African projects, including development of Langer Heinrich in Namibia and Kayelekera in Malawi.

Paladin also holds 82 percent of Western Australia-based Summit Resources Ltd (ASX: SMM), which holds uranium interests in Queensland.

Mintails Ltd (ASX: MLI) is involved in the development, processing and production of gold and uranium from “mining tailings” located on the West and East Rand areas of the Witwatersrand Basin, near Johannesburg, South Africa.

Black Range Minerals Ltd (ASX: BLR) has interests in the Tailor Ranch uranium project in Colorado and Eagle Uranium and Cyclone Ridge projects in Wyoming.

LNG

India’s dependence on imported fossil fuels rose to 38 percent in 2012 from 15 percent in 1990, despite the country having significant domestic fossil fuel resources.

India was the fourth-biggest energy consumer in the world in 2011, following China, the US and Russia.

The country’s energy demand continues to climb as a result of its dynamic economic growth and modernization.

As India modernizes and the population moves to urban areas, the country has shifted from using traditional biomass and waste to relying on other energy sources, including fossil fuels. India’s newly elected government faces challenges to meet the country’s growing energy demand, to secure affordable energy supplies, and to attract investment for domestic hydrocarbon production and infrastructure development.

According to the US Energy Information Administration (EIA), in 2013 India was the fourth-largest consumer and net importer of crude oil and petroleum products in the world after the US, China, and Japan. India’s petroleum product demand reached nearly 3.7 million barrels per day (bbl/d), far above the country’s roughly 1 million bbl/d of total liquids production.

The Australian aspect of India’s fossil fuel story relates to natural gas and coal.

India didn’t import any natural gas until 2004, when it began to import liquefied natural gas (LNG). Because India hasn’t been able to produce an adequate supply of domestic natural gas and has been unable to create sufficient natural gas pipeline infrastructure on a national level, it increasingly relies on imported LNG to meet domestic demand.

India ranked as the fourth-largest LNG importer following Japan, South Korea and China in 2013, and it accounted for nearly 6 percent of the global market, according to data from IHS Energy.

In 2012, LNG imports, mostly from long-term contracts with Qatar, accounted for about 29 percent of India’s 2.1 trillion cubic feet (Tcf) of consumption. Natural gas mainly serves as a substitute for coal in electricity generation and as an alternative for liquefied petroleum gas and other petroleum products in fertilizer production and other sectors in India.

In 2009 Petronet LNG Ltd, India’s largest LNG importer, signed a 20-year deal with Exxon Mobil Corp (NYSE: XOM) for delivery of 1.5 million metric tons per annum (Mmtpa) of output from the Gorgon LNG project to its USD800 million, 5 Mmtpa Kochi terminal at a price equivalent to 14.5 percent of prevailing crude oil prices. Petronet expects to see first cargoes under the deal in 2015.

The Gorgon project is operated by Chevron Corp (NYSE: CVX). It’s a joint venture of the Australian subsidiaries of Chevron (which own approximately 47.3 percent), ExxonMobil (25 percent), Royal Dutch Shell Plc (London: RDSA, NYSE: RDS/A, 25 percent), Osaka Gas Co Ltd (Japan: 9532, 1.25 percent), Tokyo Gas Co Ltd (Japan: 9531, OTC: TKGSF, ADR: TKGSY, 1 percent) and Chubu Electric Power (Japan: 9502, OTC: CHUEF, 0.417 percent).

India’s LNG intake capacity is now 23.6 million metric tons per annum.

But the country desperately needs more receiving terminals to cope with rising demand for gas, given that domestic supply projects haven’t met expectations. And supplies from Central Asia and the Middle East have faltered on pipeline and other infrastructure roadblocks.

Between now and 2020, India’s LNG import terminal capacity could rise to 41 Mmtpa, with a variety of expansions and new projects.

Petronet, for example, is planning to lift capacity at its Dahej terminal from 10 Mmtpa to 15 Mmtpa by 2015-16, and also has a new 5 Mmtpa plant proposed for India’s east coast, at Gangavaram in Andhra Pradesh state. It’s also looking at bringing in a floating storage and re-gasification unit (FSRU) ahead of that plant, to meet east coast demand.

Australia’s LNG exporters, including Aggressive Holdings Oil Search Ltd (ASX: OSH, OTC: OISHF, ADR: OISHY) and Woodside Petroleum Ltd (ASX: WPL, OTC: WOPEF, ADR: WOPEY) as well as Santos Ltd (ASX: STO, OTC: STOSF, ADR: SSLTY), stand to benefit from rising Indian demand.

Coal

Coal is India’s primary source of energy, accounting for 44 percent of total energy consumption. The country ranked as the third-largest global coal producer, consumer and importer of coal in 2012.

Despite its significant coal reserves, India has experienced increasing supply shortages as a result of a lack of competition among producers, insufficient investment and systemic problems with its mining industry. Although production has increased by about 4 percent per year since 2007, producers have failed to reach the government’s production targets.

Meanwhile, demand grew more than 7 percent annually over the past five years with the rise of electricity demand and lower power generation from natural gas and hydroelectricity as a result of recent supply disruptions.

Because power plants rely so heavily on coal, shortages are a major contributor to shortfalls in electricity generation and consequent blackouts throughout the country.

Coal production can’t keep pace with demand, so India has met more of its coal needs with imports. Net coal import dependency has risen from practically nothing in 1990 to nearly 23 percent in 2012.

India imports thermal coal for power generation from Indonesia and South Africa. The steel and cement industries are also significant coal consumers.

India has limited reserves of coking coal, used for steel production, and imports large quantities of coking coal from Australia.